Opinion: Berkeley homeless policy and the moral hazard problem

Berkeley should emulate what the Victorians did — redirect all homeless aid to private sector control, such as the Salvation Army, Catholic Charities or Richmond Rescue.

Of all the social issues that so-called progressives milk for political advantage — drug addiction, teen pregnancy, criminal accountability, etc. – homelessness is the most recalcitrant. What all these issues have in common is that the problem of moral hazard is the limiting factor in producing solutions or at least ameliorations.

The moral hazard problem is essentially a refined version the no-free-lunch problem. At the core of the moral hazard problem is the inescapable fact that every human action, no matter how well designed or intentioned, has negative consequences.

So for example, actions relieving pain and suffering inescapably include incentives to indulge in the behavior that leads to this suffering. Forcing people to wear seat belts results in overconfident people driving more recklessly. Putting safety caps on aspirin bottles leads lazy people to more often leave aspirin bottles totally uncapped. Alleviating the cold of the  homeless by providing shelter leads inevitably to more homelessness because, for the criminal element, the cost of homelessness is drastically reduced.

Various commenters on this problem are quite correct when they cites this as the core of the problem. Indeed, I would guess that they underestimate the size of the moral hazard problem with their estimate that 20% of the homeless are homeless by choice and criminal vocation.

Given that the moral hazard problem attaches to all social policy solutions, why is it particularly severe for the homelessness problem and for the policies to address homelessness? I think it is because for homelessness, it is particularly difficult to filter out the exploiters from the genuinely needy. This is what the Victorians called the deserving poor problem. While it is not fashionable to admire the Victorians (especially post propaganda by Charles Dickens in his many novels) they were very astute and, for the level of wealth they possessed, very effective in their social policies. For those of you who want a good review of the Victorians on this topic  I recommend The Road to Modernity: The British, French and American Enlightenments by Gertrude Himmelfarb. For the deserving poor among you I will provide a copy.

So here is the basic problem for Berkeley in regard to homelessness policy. By law and by inclination the city cannot discriminate in providing aid to the homelessness. That is, it is prohibited by law (constitutional as well as statutory) from selectively withholding aid on the basis of moral  judgments on each homeless individual. That is the city cannot apply moral or other discriminatory standards as to which homeless are deserving or not such as the Victorians did. The result is that any subsidy of homelessness greater than any neighboring jurisdiction will dramatically expand the homelessness problem for Berkeley. In a slight irony, the moral hazard problem also expands the homeless problem for other less generous cities as well but that is a discussion for another time.

So go ahead and provide more public parks for homeless encampments or totally eliminate prohibitions on panhandling. Then sooner rather than later both Berkeley and Albany homeless problem will deteriorate. And then, of course, the politicians in an orgy of virtue signaling, will demand even more park space and fewer prohibitions.

So, to borrow a question from Lenin “What is to be done?”  Berkeley should emulate what the Victorians did. That is, Berkeley should redirect all homeless aid to private sector control – Salvation Army, Catholic Charities, Richmond Rescue Mission or  a dozen other truly independent services. In some cities, like Milwaukee, this approach is already yielding good results. These agencies have the legal capacity and the inclination to actually sort the deserving homeless from the undeserving. True they will not be 100% effective in this redirection of resources, but they will be vastly better than a self-serving bureaucracy led by morally lazy politicians.

Lastly, a small postscript: the Victorians recognized that there is truly no escape from the moral hazard problem. The best you can do is to mitigate it through constant self-examination and vigilance. The proliferation of so-called nonprofits purporting to represent the best interests of the homeless provides a  good example of how subtle the moral hazard problem is. Then again politicians are another good example of how people will exploit good intentions.

Robert Krumme is a structural engineer and researcher specializing in aseismic design, founder of the award-winning Seismic Technical Advisory Panel, and former member of various Berkeley commissions including the Public Works Commission.